JURISDICTION OF INDIAN COURTS: WHERE SEAT / VENUE OFARBITRATION IS NOT MENTIONED

The Delhi High Court in a recent judgment Aarka Sports Management Pvt. Ltd. v. KalsiBuildcon Pvt. Ltd.1 , rejected the Application of the Petitioner seeking Appointment of Arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996 (herein after referred to as “The Act”) on the ground that the agreement between the parties did not provide any Clause for seat/venue of arbitration.

FACTS OF THE CASE

Aarka Sports Management Private Limited (herein after referred to as the “Petitioner”) entered into an agreement with KalsiBuildcon Private Limited (herein after referred to as the “Respondent”) on 16th March, 2018. A dispute arose between the parties and the Petitioner invoked arbitration notice on 26.02.2019 to which the Respondent replied on 20.03.2019. The parties were unable to agree on the choice of Arbitrator and as per Clause 15.32 of the agreement, if the parties fail to agree on the choice of Arbitrator within 30 days of the Notice of arbitration, the parties shall approach the court of proper jurisdiction. The Petitioner under Clause 15.13 of the agreementsoughtappointment of Arbitrator under Section 114 of The Act in the Hon’ble High Court of Delhi. Hence, the Petition.

ARGUMENTS ADVANCED

The only contention raised by the Petitioner was, that the Hon’ble High Court of Delhi had exclusive jurisdiction to entertain the petition under Clause 15.15 of the agreement, whereas, the Respondent contended that Clause 15.16 of the agreement was invalid and not absolute as it was subject to Clause 15.37 of the agreement. Also, Delhi cannot be the seat of arbitration as no cause of action arose in Delhi. Moreover, the parties cannot confer jurisdiction on a Court which otherwise has no jurisdiction. The Respondent further submitted that Clause 15.38 stipulates that the parties shall approach the “Court of proper jurisdiction”. Here, the “Court of proper jurisdiction” is the “Court” as per Section 2(1)(e)9 of the Act. Therefore, Delhi High Court was not a competent Court within the meaning of Section 2(1)(e)10 of the Act as the agreement was drawn at Ranchi; signed at Lucknow and performed at Patna.

The Petitioner placed reliance on Indus Mobile Distribution Private Limited v. Datawind Innovations Private Limited11 where the Supreme Court held that Section 2012 of The Act recognizes party autonomy to choose a neutral seat where no part of the cause of action arose. It further held that once the seat is determined, the Court of that place would have exclusive jurisdiction to regulate the arbitration proceedings arising out of the Agreement between the parties. The Hon’ble High Court of Delhi in NJ Construction v. Ayursundra Health Care Private Limited13 followed the Indus judgment. Furthermore, inBrahmani River Pellets Limited v. Kamachi Industries Limited14 , the Apex Court held that since the parties agreed to have the “venue” of arbitration at Bhubaneshwar, therefore, Orissa High Court had exclusive jurisdiction to deal with the matter and not the Madras High Court. In Virgo Softech Limited v. National Institute of Electronics and Information Technology15 , thearbitrationagreement provided that arbitration proceedings shall take place in New Delhi and the Courts at Chandigarh shall have exclusive jurisdiction to entertain any dispute arising therefrom. It was held that the Court at Chandigarh alone had territorial jurisdiction as New Delhi was only a “venue” of arbitration.

Contrary to the Petitioner’s contention, the Respondent relied upon Interglobe Aviation Limited v. N. Satchidanand16 . In this case the Supreme Court held that any Clause which ousts the jurisdiction of Courts having jurisdiction and confers jurisdiction on a Court not otherwise having jurisdiction, would be invalid. The parties cannot by agreement confer jurisdiction. Moreover, in GE Countrywide Consumer Financial Services Limited v. Surjit SinghBhatia17 , the Hon’ble Delhi High Court rejected the application for appointment of Arbitrator on the ground that the loan was applied and disbursed at Ahmedabad and no part of cause of action arose at Delhi, even though the arbitrationagreement stipulated the place of arbitration to be Delhi.

FINDINGS

The single bench of the Hon’ble High Court of Delhi agreed with the argument raised by the Respondent, to hold that it has no territorial jurisdiction to entertain this petition as Delhi was not the seat of arbitration; no cause of action arose in Delhi and the Respondent did not work in Delhi. The agreement was drawn at Ranchi, signed at Lucknow and performed at Patna. Since the agreement did not provide for the seat of arbitration, the Court within the meaning of Section 2(1)(e)18 of The Act read with Sections 16-20 (relevance on section 2019 ) of the Code of Civil Procedure, 1908 would be competent to entertain an application under Section 1120 of The Act. Also, Clause 15.121 is not valid as the parties cannot confer jurisdiction on a Court which otherwise has no jurisdiction. Not only this, Clause 15.122 was subject to Clauses 15.223 and 15.324.

CONCLUSION

In the judgment rendered by the Delhi High Court, it is pertinent to note that the agreement neither provided for seat of arbitration proceedings nor any law governing the arbitration. Therefore, the Hon’ble High Court of Delhi had no territorial jurisdiction to entertain the petition. Had the Petitioner included seat of arbitration to be New Delhi, then the High Court of Delhi would have jurisdiction to entertain this petition.

Notes

1Arb. P. 662/2019 decided on 6th July, 2020.
215.3: Arbitration- Any Dispute which is not settled by Mediation, shall be determined by Arbitration under the Arbitration and Conciliation Act, 1996, as amended by the Arbitration and Conciliation (Amendment) Act, 2015. The Arbitration shall be conducted before a sole arbitrator appointed with the mutual consent of both Parties. If the Parties are unable to reach an agreement on the choice of an arbitrator within 30 days of the Notice of Arbitration by either Party, the Parties shall approach the court of proper jurisdiction for appointment of arbitrator
315.1: This Agreement shall be governed by and construed in accordance with the laws of India and subject to clauses 15.2 and 15.3, the jurisdiction of this Agreement shall be exclusively in the courts of New Delhi, India.
411(6): Where, under an appointment procedure agreed upon by the parties,—

  • (a) a party fails to act as required under that procedure; or
  • (b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or
  • (c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure, a party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.

5Supra 3.
6Ibid.
7Supra 3.
8Ibid.
92(1)(e): In the case of an arbitration other than international commercial arbitration, the principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, but does not include any Civil Court of a grade inferior to such principal Civil Court, or any Court of Small Causes.
10 Ibid.
11 (2017) 7 SCC 678.
12 20: (1) The parties are free to agree on the place of arbitration.
(2) Failing any agreement referred to in sub-section (1), the place of arbitration shall be determined by the arbitral tribunal having regard to the circumstances of the case, including the convenience of the parties.
(3) Notwithstanding sub-section (1) or sub-section (2), the arbitral tribunal may, unless otherwise agreed by the parties, meet at any place it considers appropriate for consultation among its members, for hearing witnesses, experts or the parties, or for inspection of documents, goods or other property.
132018 (168) DRJ 274.
14(2019) SCC OnLine SC 929.
152018 SCC OnLine Del 12722.
16(2011) 7 SCC 463.
172006 (89) DRJ 73.
18Supra 9.
1920: Other suits to be instituted where defendants reside or cause of action arises- Subject to the limitations aforesaid, every suit shall be instituted in a Court within the local limits of whose jurisdiction-

  • (a) the defendant, or each of the defendants where there are more than one, at the time of the commencement of the suit, actually and voluntarily resides, or carries on business, or personally works for gain; or
  • (b) any of the defendants, where there are more than one, at the time of the commencement of the suit, actually and voluntarily resides, or carries on business, or personally works for gain, provided that in such case either the leave of the Court is given, or the defendants who do not reside, or carry on business, or personally work for gain, as aforesaid, acquiesce in such institution; or
  • (c) the cause of action, wholly or in part, arises.
    Explanation- A corporation shall be deemed to carry on business at its sole or principal office in [India] or, in respect of any cause of action arising at any place where it has also a subordinate office, at such place.

20Supra 4.
21Supra 3.
22Ibid.
2315.2: Negotiation: The Parties shall negotiate in good faith and use reasonable efforts to settle any dispute, difference or claim raised, arising out of or in connection with this Agreement including the construction, validity, execution, performance, termination or breach hereof (hereinafter referred to as ‘Dispute’). In the event that the Parties are unable to reach a resolution within 30 (thirty) days of the start of Dispute the same shall be settled by binding arbitration.
24Supra 3.

THE JUDICIAL INTERPRETATION OF SAROD RULES

In a recent decision rendered by the Hon’ble Delhi High Court in IRB Ahmedabad Vadodara super express Toll way Private Limited vs. National Highways Authority of India, the Hon’ble High court interpreted arbitration rules of the Society for affordable redressal of disputes (herein after referred to as “SAROD”) pertaining to a dispute between two nominated arbitrators regarding appointment of the presiding arbitrator. The Hon’ble court also returned findings as to when a petition under Section 11(6)(b) of the Act1 be filed in the High Court.

FACTS OF THE CASE

IRB Ahmedabad Vadodara super express Toll way Private Limited (herein after referred to as the “Petitioner”)entered into an agreement with the National Highways Authority of India(herein after referred to as the “Respondent”) for conversion of NH-8 between Ahmedabad and Vadodara into a six-lane highway. In the initial agreement, it was agreed upon between the parties that any dispute arising between them shall be resolved by way of arbitration, which was to be governed by rules of arbitration framed by International Centre for Alternative Disputes Resolution. On 14.07.2014, both the parties entered into a supplementary agreement, whereby, it was agreed upon that in case of any dispute, the arbitration shall be governed by the arbitration rules framed by SAROD and the appointment of presiding arbitrator shall be governed by Rule 11.2 of the SAROD rules2 , and thus the earlier provisions in the main agreement were modified accordingly. In 2019, when disputes arose between the parties, the Petitioner invoked arbitration and both parties nominated one arbitrator each. However, when both the nominated arbitrators failed to appoint the presiding arbitrator, the Petitioner filed the petition under Section 11(6) (b) of the Actby urging that the procedure agreed upon between the parties for appointment of the presiding arbitrator had failed.

ARGUMENTS ADVANCED

The contentions raised by the Petitioner were three-fold; first, that since the supplementary agreement specifically provides for the appointment of the presiding arbitrator in accordance with Rule 11.23, the Respondent cannot resort to any other rule, to enable the Governing Body to make such an appointment, secondly, that since the procedure assented to by both the parties for the appointment of the presiding arbitrator had failed, there was no other alternative, than to invoke Section 11(6) (b) of the Act4 , thirdly, that since the procedure consented to, for appointment of the presiding arbitrator has stalled, the presiding arbitrator need not be from the SAROD panel, as the Governing Body has key officials as employees of the Respondent and the earlier panel having 177 names from all fields has been curtailed now to just 33, out of which just 4 arbitrators were legally trained.

Per contra, the Respondent argued that the rules should be construed harmoniously and Rule 11.25 cannot be read in isolation from the other rules and since the procedure prescribed in Rule 11.26 had yielded no result, it was appropriate to invoke Rule 11.57 that provides for the Governing Body to appoint the presiding arbitrator and since the Governing Body was yet to do so, the procedure agreed upon for the appointment of the presiding arbitrator had not yet failed and thus, the petition was premature and warranted dismissal. The Respondent assured the court that the procedure that is in place to enable the Governing Body to make the appointment is free from any partiality and is done by way of draw of lots and moreover, the apprehensions of bias raised by the Petitioner were baseless, since, the reduction in the number of arbitrators on the panel was on account of their terms of empanelment coming to an end on 30.05.2020 and not in any manner intentional.

FINDINGS

The Hon’ble High Court agreed with the argument raised by the Respondent, to hold that in general, the Rules had to be read conjointly, meaning thereby, that Rule 11.28 had to be read in coherence with Rule 11.59 and the two cannot be said to be independent of each other. However, the court further held that each petition would have to be decided in its own facts and circumstances, and since in the instant case, in the supplementary agreement, the parties specifically and explicitly confined the procedure of appointment of the presiding arbitrator exclusively to Rule 11.210 , no resort could be made to Rule 11.511 and thus, the Governing Body12 could not make the appointment. Furthermore, the court also held that since only Rule 11.2 was applicable in the instant case, and the procedure prescribed therein had admittedly flunked, the petition could not be said to be premature and filing of the said petition was the only resort available to the petitioner. In holding this, the Hon’ble High Court placed reliance upon the judgments of the Hon’ble apex court in Voestalpine Schienen GMBH vs. Delhi Metro Rail Corporation Limited13, National Highways Authority of India vs. Bumihiway D.D.B Ltd14 and Central Organisation for Railway Electrification vs. ECI-SPIC-SMO MCML15. Lastly, the Hon’ble High court held that since the procedure agreed upon for the appointment of the presiding arbitrator had failed, there is no reason to restrict the appointment to an arbitrator from the present panel maintained by SAROD. The court held that since the number of arbitrators on the panel had been drastically reduced from 177 to 33, that too with only four members having legal training, the choice for the appointment of the presiding arbitrator cannot be restricted to the 33 members on the panel and thus, the appointment be made of a person from legal background from the erstwhile panel of 177 arbitrators maintained by SAROD. In holding this, the court emphatically placed reliance upon the decision of a coordinate bench of the Delhi High Court in Bernard Ingenieure ZT-GMBH vs. IRCON International Ltd16 and a judgment of the Supreme Court in Perkins Eastman Architects DPC & Another vs. HSCC(India) Limited17.

ANALYSIS OF THE FINDINGS

The Judgment of the Hon’ble Delhi High Court in the instant case is ambiguous to say the least. On one hand the court accepts the arguments advanced by the Respondent, to go on to hold that Rule 11.218 and Rule 11.519 have to be read concertedly, leading to the inference that once the nominated arbitrators fail to reach a consensus on the appointment of the presiding arbitrator, the Governing Body shall have the authority to make such appointment by virtue of Rule 11.520, despite the absence of such direct stipulation in the said rule. However, on the other hand, on an application of the said principle to the instant case, the court holds that since the parties had categorically agreed to make only Rule 11.221 applicable to the appointment of the presiding arbitrator, Rule 11.522 shall have no application at all. These findings, are not only self-contradictory, but also lay down a bad precedent that says that even if otherwise, a set of rules or a particular statute is to be read as a whole in order for its application, if two parties agree to make just one rule/section applicable to their agreement,they can exclude the other provisions at their whim. This is not only against the settled position of law, but also does not fare well with the logic of a prudent man. Furthermore, the Hon’ble court went on to hold that the appointment of the presiding arbitrator should be done from the panel earlier maintained by the SAROD having 177 members and not from the present panel. This finding by the court only leads to the conclusion that the agreement between the parties, whereby they agreed to appoint the presiding arbitrator from amongst the panel maintained by SAROD has been rendered meaningless and the Hon’ble High Court chose the presiding arbitrator from amongst members whose terms of empanelment had already expired, thus eventually changing the terms of appointment unilaterally and against the decision rendered by the Supreme Court in Perkins Eastman23. On a bare perusal of the said findings, it becomes apparent that the Hon’ble court was in the throes of a legal conflict, torn between deciding on principles and eventually bowing to the exigencies as depicted by the Petitioner.

CONCLUSION

The judgment rendered by the Hon’ble High court in the instant case would sooner or later need reconsideration, as the precedent that it sets would lead to a chaotic end to many more cases. The case law referred to by the Hon’ble court has not been properly appreciated and the interpretation of the SAROD rules is vague and delusionary. At a time when the field of arbitration is craving more than ever for seminal judgments to enhance its scope, the judgment in the instant case can be safely termed as obscure.

Notes

1Section 11(6) (b) of the Arbitration and Conciliation Act, 1996,
Where, under an appointment procedure agreed upon by the parties:-

  • (a) A party fails to act as required under that procedure; or
  • (b) The parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or
  • (c) A person, including an institution, fails to perform any function entrusted to him or it under that procedure,

A party request [the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court] to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.
2Rule 11.2 of SAROD- In all cases of disputes claimed for more than Rs. 3 Crores, the tribunal shall consist of add number of Arbitrators to be nominated by the parties. The presiding Arbitrator shall be appointed by the Arbitrators nominated by the parties from amongst the panel maintained by SAROD. For deciding the Presiding Arbitrator, a draw of lots can be carried out from amongst the names suggested by the Arbitrators nominated by the parties. The eligibility criteria for empanelment of Arbitrators will be decided by the Governing Body.
3Ibid
4The Arbitration and Conciliation Act, 1996.
5Supra 2.
6Ibid.
7Rule 11.5 of SAROD- In the event of any party failing to appoint Arbitrator within 30 days of receipt the notice of Arbitration, the Governing Body shall appoint the Arbitrator or Presiding Arbitrator as the case may be by draw of lots.
8Supra 2.
9Supra 7.
10Supra 2.
11Supra 7.
12“Governing Body” means Governing Body of SAROD as defined in Article 9 of Memorandum of Association.
13Voestalpine Schienen GMBH vs Delhi Metro Rail Corporation Limited, (2017) 4 SCC 665.
14National Highways Authority of India vs Bumihiway D.D.B Ltd, (2006) 10 SCC 763
15Central Organisation for Railway Electrification vs ECI-SPIC-SMO MCML, 2019 SCC Online SC 1635
16>Bernard Ingenieure ZT-GMBH vs IRCON International Ltd., 2018 SCC Online Delhi 7941.
17Perkins Eastman Architects DPC & Another vs HSCC (India) Limited, 2019 SCC Online 1517.
18Supra 2.
19Supra 7.
20Supra 7.
21Supra 2.
22Supra 7.
23Perkins Eastman Architects DPC & Another vs HSCC (India) Limited, 2019 SCC Online 1517.